From a creditor’s point of view, the higher the debt to assets ratio, the lower the risk that
the company may be unable to pay its obligations.
Freight-out appears as an operating expense in the income statement.
The adjusting entry for accrued salaries requires a debit to Salaries and Wages Payable.
The formula for the present value of a single amount is FV / (1 + i)N.
Revenue received before it is recognized and expenses paid before being used or
consumed are both initially recorded as liabilities.
Sales revenue minus operating expenses equals gross profit.
Accrued revenues are revenues that have been received but not yet recognized.
To compute the present value of a bond, both the interest payments and the principal
amount must be discounted using the bond€s contractual interest rate.
Solvency is a company’s ability to pay interest as it comes due and to repay the balance
of a debt due at its maturity.
Cost constraint weighs the cost that companies incur to provide a type of information
against its benefit to financial statement users.
Net cash provided by operating activities takes into account that a company must invest
in capital expenditures just to maintain its current level of operations.
The heading for the income statement might include the line €As of December 31,
20xx.€
Days in inventory is calculated by dividing 365 days by
a.average inventory.
b.beginning inventory.
c.ending inventory.
d.the inventory turnover.
Which statement is true concerning the accrual basis of accounting?
a.Revenues are recognized when earned and expenses are recognized when paid.
b.Revenues are recognized when earned and expenses are recognized when incurred.
c.Revenues are recognized when received from customers and expenses are recognized
when incurred.
d.Revenues are recognized when received from customers and expenses are recognized
when paid.
Information presented in a clear and concise fashion so that users can comprehend its
meaning is an application of
a.consistency.
b.timeliness.
c.verifiability.
d.understandability.
The amount you must deposit now in your savings account paying 5% interest, in order
to accumulate $18,000 for your first tuition payment when you start law school in 3
years is
a.$15,300.00.
b.$14,094.00.
c.$15,549.12.
d.$15,947.28.
The financial statements of the Belfry Manufacturing Company reports net sales of
$500,000 and accounts receivable of $80,000 and $40,000 at the beginning of the year
and end of year, respectively. What is the average collection period for accounts
receivable in days?
a.29.2 times
b.86.9 times
c.44.0 times
d.57.9 times
What is sustainable income?
a.The most likely level of income to be obtained in the future
b.The net cash generated from operating activities
c.Income from operations
d.Comprehensive income
Nacron Company borrowed $10,000 from the bank signing a 6%, 3-month note on
September 1. Principal and interest are payable to the bank on December 1. If the
company prepares monthly financial statements, the adjusting entry that the company
should make for interest on September 30, would be:
a.debit Interest Expense, $50; credit Interest Payable, $50.
b.debit Interest Expense, $600; credit Interest Payable, $600.
c.debit Note Payable, $600; credit Cash, $600.
d.debit Cash, $50; credit Interest Payable, $50.
Sprague Associates sold office furniture for $32,000. The furniture had an original cost
of $96,000 and accumulated depreciation of $48,000. Ignoring the tax effect, as a result
of the sale
a.net income will increase $32,000.
b.net income will increase $16,000.
c.net income will decrease $16,000.
d.net income will decrease $32,000.
Apple-A-Day Company has the following inventory data:
A physical count of merchandise inventory on July 30 reveals that there are 25 units on
hand. Using the LIFO inventory method, the amount allocated to cost of goods sold for
July is
a.$1,585
b.$1,540
c.$1,555
d.$1,540
Return on assets is most closely related to
a.profit margin and debt to assets ratio.
b.profit margin and asset turnover.
c.times interest earned and debt to stockholders’ equity.
d.profit margin and free cash flow.
Use the following data to determine the total dollar amount of assets to be classified as
investments.
a.$0
b.$160,000
c.$90,000
d.$140,000
a. A machine that cost $36,000 and on which $26,500 of depreciation had been recorded
was disposed of for $10,200. Indicate whether a gain or loss should be recorded, and for
what amount.
b. Assume that the machine of Part a, above, was instead discarded. Indicate whether a
gain or loss should be recorded, and for what amount.
c. Assume that the machine of Part a, above, was instead sold for $9,400. Indicate
whether a gain or loss should be recorded, and for what amount.
Freidrichs Company has issued and outstanding 11,000 shares of cumulative, 6%, 50
par value preference shares which it sold for 54 per share at the beginning of 2012.
The company has never paid preference dividends. As of December 31, 2014, dividends
in arrears are
a. 66,000.
b. 99,000.
c. 121,500.
d. 106,920.
The current carrying value of Pierce’s $900,000 face value bonds is $896,600. If the
bonds are retired at 102, what would be the amount Pierce would pay its bondholders?
a.$896,600
b.$900,000
c.$902,000
d.$918,000
The following information is provided for Nguyen Company and Northwest
Corporation.
If Nguyen and Northwest are in the same industry and the industry average for return
on assets is equal to 30%, which of the following statements is true?
a.Nguyen is more profitable than the average company in its industry.
b.Northwest is more profitable than Nguyen.
c.Both Nguyen and Northwest are more profitable than the average company in their
industry.
d.Nguyen is more profitable than Northwest.
Which of the following is not a quality associated with faithful representation?
a.Complete
b.Materiality
c.Neutral
d.All of these answer choices are correct.
On June 1, 2014, Shaw Company prepared a balance sheet that shows the following:
Shortly thereafter, all of the assets were sold for cash.
How would the balance sheet appear immediately after the sale of the assets for cash for
each of the following cases?
Instructions
Show how each item should be reported in the statement of cash flows. Use parentheses
for deductions.
Prepare a trial balance from the ledger accounts of Swisher Company as of January 31,
2014.
Hess Company’s inventory records show the following data for the month of
September:
A physical inventory on September 30 shows 150 units on hand.
Calculate the value of ending inventory and cost of goods sold if the company uses
LIFO inventory costing and a periodic inventory system.
Renfro Company issued $300,000 of 8%, 10-year bonds at 102. Interest is paid
annually, and the straight-line method is used for amortization. Assume that the market
rate for similar investments is 7%. The bonds are issued on the date of the bonds.
What amount was received for the bonds?
How much interest is paid each interest period?
What is the premium amortization for the first interest period?
How much interest expense is recorded on the first interest date?
What is the carrying value of the bonds after the first interest date?
Instructions
Designate the terminology that best represents the definition or statement given below
by placing the identifying letter(s) in the space provided. No letter should be used more
than once.
1)A characteristic of information that means it is capable of making a difference in a
decision
2)An assumption that the economic life of a business can be divided into artificial time
periods
3)This method of accounting for uncollectible accounts is required when bad debts are
significant in size
4)Used by a bank when a previously deposited customer€s check €bounces€ because of
insufficient funds
5)The assumption that the enterprise will continue in operation long enough to carry out
its existing objectives and commitments
6)The periodic write-off of an intangible asset
7)The total amount subject to depreciation
8)Use of the same accounting principles and methods from period to period by the same
business enterprise
9)A permanent decline in the fair value of an asset
10)The party in a promissory note who is making the promise to pay
11)An expenditure charged as an expense when incurred
12)The inventory costing method that assumes that the costs of the earliest goods
purchased are the first to be recognized as cost of goods sold
13)A system in which detailed records are not maintained and cost of goods sold is
determined only at the end of an accounting period
14)The methods and measures adopted within a business to safeguard its assets and
enhance the accuracy and reliability of its accounting records
15)Accounts whose balances are transferred to retained earnings at the end of an
accounting period
16)A technique for evaluating financial statements that expresses the relationship
among selected financial statement data
17)A measure of solvency that compares cash provided by operating activities and
liabilities
18)An inventory costing method that assumes that the latest units purchased are the first
to be allocated to cost of goods sold
19)A pro rata distribution of a corporation€s own stock to its stockholders
20)The net income earned by each share of outstanding common stock
Traynham Company runs a retail company and recently completed its third year of
operations. The balance sheet and income statement follow:
Additional Information on Year 2014 Transactions
1)Purchased equipment by paying signing a long-term note for $8,000 and paying cash
for the balance
2) Paid cash as a payment on the long-term notes payable
3) Issued 100 shares of common stock for cash
4) Declared and paid cash dividends of $16,000
Instructions: Prepare a statement of cash flows for 2014 using the direct method.
